Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 1 - Evidence - March 18, 2010
OTTAWA, Thursday, March 18, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Welcome, everyone, to the meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is David Angus. I represent the Province of Quebec. I am chair of this committee. With me today is Senator Mitchell from Alberta, who is the deputy chair of the committee; Senator Richard Neufeld from British Columbia; Senator Bert Brown from Alberta; Senator Tommy Banks from Alberta; Senator Dan Lang from Yukon; Senator Judith Seidman from Montreal, Quebec; and Senator Elaine McCoy from Alberta.
Also here is our efficient clerk, Lynn Gordon, together with two people from the Library of Parliament — which I understand is well known to one of our guests today — Sam Banks and Marc Leblanc. That is the team.
For those of you who are not aware, in addition to the folks in the room, we have our viewers on the World Wide Web and the webcast. We are also on the network of CPAC. In this respect, I want to say that we are continuing our study on the current state and future of Canada's energy sector, including alternative energy.
As we all know, Canada is a major producer of energy in a world where energy demand is steadily growing and conventional energy supply is diminishing. Also, governments around the world are confronted with the challenge of how to achieve energy security while reducing carbon emissions.
Carbon emission targets by Canadian governments and the substance of a global agreement on climate change action have the potential to shape all aspects of Canada's future energy system. In light of these issues, the committee believes that it is time for a national discussion concerning Canada's future energy sector and a framework for a strategy for public policy in that regard. As a result, we launched a study last fall.
We were pleased to note that we were not the only people with that sort of mission in mind. I have identified at least three, if not four, groups in the country who are actively pursuing closely related undertakings to establish this kind of a framework. I think it is relevant to pool our resources and, if not avoid duplication of work, at least have a cooperative approach to the subject matter.
On Tuesday of this week, we had the Energy Council of Canada here, which is also conducting a study of that nature. Today, we are privileged to have visiting with us two witnesses from the Energy Framework Initiative, two gentlemen that the deputy chair and I were privileged to have lunch with before Christmas. It was clear to us that the Energy Framework Initiative is in sync with our mission and they have agreed to come before us today.
I have the pleasure of introducing Peter Boag, President of the Canadian Petroleum Products Institute, and Michael Cleland, President of the Canadian Gas Association.
As we will hear in more detail shortly, the Energy Framework Initiative was initiated and sponsored by the presidents of four Canadian associations representing companies in the oil and gas value chain: Canadian Association of Petroleum Producers, Canadian Energy Pipeline Association, Canadian Petroleum Products Institute and the Canadian Gas Association. I am certain our witnesses will outline the initiative best, so I will leave the details to them.
As I said, Michael Cleland is President and CEO of the Canadian Gas Association. Before joining the CGA, he was senior vice-president, government affairs, for the Canadian Electricity Association, CEA. Prior to joining CEA in 2000, he was assistant deputy minister, energy sector, Natural Resources Canada; and before that, he was director general of the energy policy branch. He is well suited to study a framework for public policy in this field. From 1987 to January 1990, he was assistant director, resource policy division, in the Department of Finance.
Mr. Boag is President of the Canadian Petroleum Products Institute, CPPI, the national association of major Canadian companies involved in the refining, distribution and marketing of petroleum products for transportation, home energy and industrial uses. He has an 18-year track record of successful public policy advocacy and industry association leadership. He was appointed president of CPPI in 2007, having previously been the president and CEO of the Aerospace Industry Association of Canada.
Gentlemen, thank you for appearing before us this morning. We have a copy of your presentation, which has been circulated to committee members. The format will follow the usual mode, namely that you make your presentations and then senators question you.
I will make a brief departure between 8:50 a.m. and 9:30 a.m. Do not worry. I will return in time for a question or two.
Mr. Boag, please proceed.
Peter Boag, President, Canadian Petroleum Products Institute, Energy Framework Initiative: Thank you and good morning, senators. It is our pleasure to be here this morning before the committee to provide perspectives on this important study. I want to talk to you about a joint initiative of the four associations in the oil and gas value chain that ran from late 2008 through most of 2009. The Canadian Petroleum Products Institute and the Canadian Gas Association represent the two downstream groups in that association. Regrettably, our colleagues at the Canadian Energy Pipeline Association and the Canadian Association of Petroleum Producers were unable to join us today, although they send their regards. They look forward to another opportunity to engage the committee on this subject.
The Chair: The goal of the committee today is to gain a preliminary overview to determine whether we are on the same track. At a later date, you can come back to compare notes in more detail.
Mr. Boag: I will take you through the first four or five pages of the presentation, and then I will hand it over to Mr. Cleland, who will provide a more detailed explanation of the Energy Framework Initiative.
How did we get here? The concept of the Energy Framework Initiative began in late 2008 when the heads of our four associations shared views on the need and importance of raising the profile of both energy and energy policy in Canada. There was a strong shared feeling that what discussion there was — and there was not much of it — was confined to silos. There was little acknowledgement of the critical linkages between energy, the economy and the environment — the 3Es that many people talk about — and little debate or dialogue in the interconnected 3E context.
It was also the view of the downstream sector that the conversation was constrained by a discussion of the energy sector and the supply side of energy rather than Canada's overall energy system. You will hear us stress that key point throughout our presentation today and in the ensuing discussion. Fundamentally, when we discuss energy in Canada, we need to talk about an energy system that encompasses both energy use and energy supply — all the parts that interconnect and interact. What users of energy do is as important to the future of energy and Canada as what the producers do.
The EFI was a collaborative effort that ran through much of 2009. The underlying objective was to create a framework to bring coherence to an increasingly complicated and rapidly changing energy space. We engaged and sought input from a diverse group of stakeholders that included industry members, academics, think tanks, environmental non-governmental organizations and some federal and provincial officials. During the course of 2009, we conducted a series of workshops. We had productive discussion with the Council of Energy and Mines Ministers at their meeting last fall in St. John's, Newfoundland and Labrador. We culminated our activity for 2009 with a one-day forum in Ottawa. The output of that activity was our EFI final paper, which we will forward to the committee in the imminent future after it has been translated. As the framework emerged, we engaged independent people, who had participated through the EFI process and workshops, to pen six independent papers on the six identified pillars. That is how we arrived at where we are today.
Many have asked: Why now? Why are we doing this? What has caused us to move forward on this Energy Framework Initiative? The need for a coherent framework for discussion is not new. We have muddled through in Canada without a framework for decades. Why now? Simply put, it is our view that at no time has there been such a confluence of issues, pressures and opportunities regarding energy, or public discussion of such diversity and intensity. These factors have created a new urgency for this kind of dialogue and debate for the development of an overall strategy.
One of those pressures is the changing supply picture, with affordability being a key part of that debate. A second pressure is the role of energy and Canada's influence and power in the world. In his opening remarks this morning, the chair of the committee mentioned the energy security issue. Canadians feel generally insulated from the energy security concerns that others such as the United States have, given our rich energy endowment. However, the security debate matters to everyone, in particular, to Canada as a major producer and exporter of energy. It is our view that we cannot afford to be a spectator in the energy security debate.
The third pressure that is important for debate centres on how markets and private capital should interact with public ownership and regulation; we have both in Canada. The fourth pressure is that great and complex mix of land, water, air, habitat, even lifestyle and the aesthetic impacts of energy and the constant controversy surrounding them and our declining capacity and ability in Canada to resolve them.
The fifth pressure, perhaps the biggest environmental debate, is how to respond to the challenge of climate change. Those factors brought us to realize that now is the time to move forward with this Energy Framework Initiative.
What is a framework? A framework is about raising the profile of energy and energy policy, and providing the necessary coherence to effective policy discussions. It is about creating a structure that lays a context, establishes fundamental underlying principles and articulates key policy elements as well as the outcomes we are trying to achieve. It is about encouraging a common language to facilitate and promote dialogue between various interests in our society, especially given the Canadian context of multiple jurisdictions. The field of energy engages and involves multiple jurisdictions in Canada through our constitutional construct.
A framework is a platform for developing the sense of urgency, which we believe is required, and for building the shared vision essential to the development of a robust and enduring integrated energy policy that fully responds to the complexity and interconnectedness of the energy system, not only the energy sector. It is a way of thinking about energy in a coherent and integrated way across jurisdictions. It is a framework for aligning interests while ensuring the flexibility necessary to develop policy direction appropriate to specific sectors and jurisdictions.
That is our concept of a framework but it is also important to emphasize that a framework is not a strategy or a policy, which is the step following development of a framework. We see the framework as an enabler to the development and implementation of integrated policy, which is rightly the business of individual jurisdictions.
Used in this context, a framework is an instrument for diverse stakeholder access and input across the entire energy system to build what is required in terms of a long-term consensus on energy policy in Canada. A framework is an enabler rather than a policy or a strategy. The next slide shows a brief schematic diagram of how we see this framework coming together. I will hand it over to Mr. Cleland in a second so he can take you through the specifics of the strategy in more detail. Simply put, the strategy builds on a foundation, then identifies what we think are the six key policy areas that need attention. Then the strategy drives toward what we think are the important outcomes and vision, if you will, of energy in Canada in the long term.
The foundation of the framework integrates three key areas of sustainable development: the economy, society and the environment. In our view, these areas are critical grounding principles. The framework needs to be looked at in the context of that integrated whole: foundation principles, policy pillars and outcomes that comprise a long-term vision.
Building on that foundation, we identify six key policy pillars that collectively form an integrated framework. Those policy pillars then build towards those outcomes of security, affordability, reliability, innovation and sustainability; the energy vision for Canada.
With that introduction, I will pass it over to Mr. Cleland for a more detailed description of the framework itself.
Michael Cleland, President and CEO, Canadian Gas Association, Energy Framework Initiative: As Mr. Boag said, I will take you a little deeper into the elements of the framework.
Before doing that, I emphasize that this strategy is a work-in-progress. Mr. Boag talked about the things we did through 2009. We are doing other things this year, and we will talk about those things at the end. The most important point is that there is not a right answer to this work and there is not a finished answer. It is about a dialogue and an ongoing kind of exploring of where the consensus is in Canada around energy. What do we believe as Canadians? When we go into the principles, and I will talk about those in more detail, the important thing is that we continue to think these principles through more fully and we welcome input from you and from others as we refine them.
Principles are often treated as a list of things; we have completed that part, now let us move on and talk about the real stuff. I do not think that is the case here, and I think my colleagues in the Energy Framework Initiative will agree. We have to get the principles right. At least, we need an ongoing dialogue about what we believe as a society.
With that, by way of introduction, let me talk about what we call the economic underpinnings.
The Chair: Do you mind a brief intervention by the chair here? It seems to me with your background as a federal government senior policy implementer, you will have a good appreciation of the problems posed by jurisdictional considerations and the complex maze we are here in Canada, given that on the face of it, at least, these subject matters are of provincial interest. I wanted to highlight that point, having read your curriculum vitae and seeing that I think you are ideally positioned to do this venture. I wanted to point that out.
Mr. Cleland: Thank you for that point. Mr. Boag mentioned earlier about what a framework is and is not, and I think that definition goes to that point.
At the end of the day, the policy responsibilities rest with individual jurisdictions. They are the ones that implement it and carry it forward. It would be presumptuous on our part to suggest that we can tell Newfoundland and Labrador, Alberta, Quebec or one of the territories exactly how to go about their energy policy in detail. This strategy is, in a sense, a backdrop to that policy, but one that we think provides a common basis for Canadians to talk about energy.
The Chair: You may not know, and I omitted saying it in my introduction today, that we have amongst our committee members, two former provincial ministers, experts in this area, Senator McCoy and Senator Neufeld. They bring to us a better appreciation of that challenge, and they put in stark relief this enabling function, as opposed to actual policy-making. Senator McCoy, in particular, has pointed out to us how the industry seeks guidance — the four main associations that you appear to represent — yet no one has come forward with this framework. I make these comments simply to let you know that we are wrestling with that aspect of policymaking.
Mr. Cleland: Thank you. As I say, I hope this information is constructive as you continue forward.
I do not want to belabour the point because we could spend a whole hour or more on any one of these principles, but under the economic underpinnings, the issue of open, domestic and international markets seems uncontroversial, but it has only about a 20- or 25-year history in Canada. It was not until the mid 1980s that we moved into that way of thinking about energy. Canada, the United States and some European countries are among the few countries in the world that subscribe to that thinking. It seems uncontroversial to us today, but it is not uncontroversial in the world, and it certainly was not in history. It is our view that this principle needs to be reaffirmed, and we think it is fundamental to our future success in energy.
The second underpinning with respect to consistent, evenly applied rules is one road Canada has yet to go down as far as it needs to go. As we look at it, and this perspective is obviously one of private sector companies, we find ourselves competing often with Crown corporations, municipal governments and municipal corporations in the energy sector where the playing field is not level and where different rules apply for different players.
If you look more broadly at what the International Energy Agency is saying about the need for investment in energy, and you look at what people on the climate change file are saying about the fundamental reinvestment we have to make on our whole energy system, the amount of investment required is staggering. The only way we will accomplish that investment is by attracting private sector investment.
In our view, and this point is for discussion and debate, if you want to attract private-sector investment, private-sector investors have to see a playing field as level as possible and a set of rules as evenly applied as possible.
Finally, with respect to transparency in energy pricing, in Canada, we are far from it. With respect to electricity, everyone understands the political reasons why it is difficult to price electricity at its marginal cost and at its inevitable future cost. It would be unreasonable of us to trivialize that difficulty. Nonetheless, as we go forward and Canadians make energy choices, they will have to see real prices that include the cost of carbon. Again, Canada has a ways to go in this area. In our view, this principle is fundamental. Unlike the first principle, this one remains extremely controversial.
Let me turn to the social underpinnings. We say that we believe — and this is an assertion, I suppose — that energy resource development and transport are broadly in the national interest, but there are buts that go with that belief. That is the second bullet in this slide: the fact that the costs and benefits of that development are not always evenly distributed. We dismiss local concerns with the term, not in my backyard, NIMBY. I am not 100-per-cent certain that is a good way to approach them. Sometimes it drives us crazy, but the simple fact is that for local communities, there are local costs that are not necessarily accounted for as well as they need to be in energy development.
You will see in one of our pillars that we talk about the issue of social license. We think there needs to be a bigger conversation in Canada about how we resolve some of those issues in a way that is less time consuming, more cost-effective and ultimately more satisfying to the interests involved.
The third bullet deals with costs of energy. Mr. Boag mentioned earlier that we think over time the costs of energy will probably rise for a number of fundamental reasons, including the cost of carbon and climate change. Consumers need to see those real costs, as I said on the last slide. However, there are ways of mitigating the effects of those costs, particularly on vulnerable consumers. That mitigation is a social policy issue, and it is linked to the issue of pricing. The important thing is that the way we mitigate those impacts should not mask the price of energy, and there are ways of accomplishing that goal.
Finally, there are the questions of human health and safety. The most fundamental thing about the energy system, aside from the need for it to be reliable, is that Canadians perceive it to be safe. We have a terrific track record in Canada across the whole system, one that we can be proud of as we look forward in terms of new technologies, investments and the speed with which we turn over the energy system to respond to the climate change issue.
Health and safety are absolutely bedrock. We cannot compromise those foundations. If Canadians lose confidence in them, then we are seriously in trouble. Ensuring health and safety is primarily our job, and we need help and assistance from government to get the rules right and ensure that they are enforced. Fundamentally, however, health and safety are about us and our practices, which we continually try to improve.
There are environmental underpinnings. Climate change, until the Copenhagen summit and a few other events, completely dominated the debate. It is striking how climate change has dropped off the screen in many places. This issue will not disappear; it will come back. The science is being debated, as it should be. The likelihood is high that we will need to move forward on this issue; however, it cannot be the only part of the environment that we think about.
I am sure you can think of cases where the drive to reduce greenhouse gases often bumps up against other environmental issues. It could be run-of-river hydro in British Columbia, which is a striking case in point, or the recent controversy in Oakville over the site of a gas-fired power plant. We think the concerns are undue, but that is not the point. The point is that there is a controversy with respect to other environmental emissions associated with a project that is manifestly in the interests of Ontario if it wants to reduce its greenhouse emissions. We have to take those emissions into account from the beginning. If we do not, they will catch us out later on.
We need to take action on climate change across the whole economy. That need is fundamental, from our point of view. A molecule of carbon is a molecule of carbon. Ultimately, if we are to accomplish this goal efficiently, we have to ensure that we are pricing it to all consumers of energy. That point is controversial and tough politically. We have seen what happened in the U.S. with what looks like a failure in the U.S. Congress, and we are a long way from cracking that nut in Canada.
There is no way to avoid environmental consequences from any kind of energy development, whether it is wind farms, hydro, coal-fired power plants or development associated with petroleum products. We have to take those consequences into account. We strongly suggest that risk-based approaches can make best use of private-sector, governmental and regulatory resources to achieve the environmental outcomes that we are looking at.
Let me quickly address the six pillars. I will not spend a lot of time on these pillars except to say that pillar 1 is pillar 1 for a reason. We need to start at the demand end of the system. The issue is, what energy services do Canadians need and want, and how do we deliver those energy services in a way that is environmentally responsible, efficient, affordable and reliable? That issue ties into principles such as the pricing issue, the issue of evenly applied rules and the social policy of mitigating impacts on low-income consumers. Having looked at demand, it will quickly become obvious that we need supply. We will have to find ways of extracting our resources more sustainably, and ensuring that they are produced and transmitted to markets more sustainably. Again, going back to the principles, we argue that we need to use risk-based approaches to accomplish that goal.
A sustainable approach to energy and climate change is fundamental but cannot be approached in isolation. Climate change is embedded in energy policy or in the way we think about the energy system. Most greenhouse gases come from the production or consumption of energy. We need to have economy-wide carbon pricing and link the other objectives if we are to leave behind what so far has been an unblemished 20-year track record of failure in dealing with greenhouse gases in Canada.
I mentioned earlier the ongoing social licence to operate. We are digging ourselves deeper and deeper into a hole in Canada as long as we fail to come to grips with that issue. More and more, everywhere we turn, whether it is power lines, pipelines or new energy production projects, local communities are saying no. It is becoming harder and harder to operate. We need a different kind of dialogue if we are to move past that issue.
When we say "a continuous improvement in capacity and capability," people often forget that this improvement requires a lot of human capacity. It requires policy capacity, regulatory capacity, innovation, technological development and a variety of skills. Yet, this pillar never appears on many screens, particularly political screens. In the face of government cutbacks across Canada, both in the federal government and at the provincial level, much of that capacity will be at risk. This situation is something we need to think about. The resources do not just jump out of the ground. The regulatory processes do not just appear. We do not find smart ways of accomplishing this goal without human capacities to make it happen, and Canada should invest in those capacities.
A collaborative approach to intergovernmental engagement is easier said than done. Senator, you mentioned the fundamental constitutional facts of energy in Canada. Sometimes the approach works well; more often than not, it works badly. Our belief is that if we can at least come to some fundamental agreement on some of these basics, that collaboration may become easier. It is in the interest of Canada to come to that agreement. When we say "intergovernmental engagement," we also mean outside Canada's borders in our relations not only with the United States but with our other major partners in the world.
The next slide is, "Towards a future vision." I mentioned the need for a baseline understanding. We have initiated a project on that understanding. At some point, if one or more of us is invited back, we would be delighted to talk to you about that project. We need to spend more time thinking about what the fundamental objectives are. We have not, ourselves, given that area as much attention as we think it needs, but we have to think about where Canada needs to go in energy broadly looking out to, let us say, 2020 and 2050. What is our vision? Before we can develop a strategy, we need a vision; and that vision, in turn, needs to be founded, in the first instance, on where we stand right now.
How can we assess policy in a more integrated manner? How can we put the pieces together more efficiently, perhaps, than we have done today?
We are working on a couple of specific policy areas. Mr. Boag and I are leading the work of digging more deeply into what we call pillar 1 and pillar 3. How can the end-use energy and the energy delivery system to consumers be rethought to contribute to our climate change objectives, in particular? We think that part of the system plays as big a role, maybe bigger, than the production system, and it tends to be forgotten. Much of the burden tends to be placed on the production system in ways that not only are unfair but, more importantly, are unproductive. We have to focus on this part of the system if we are to make the kind of transformation that is implied in our greenhouse gas objectives for 2050.
At the same time, we are working in parallel with our colleagues at The Canadian Association of Petroleum Producers and the Canadian Energy Pipeline Association on the issues of regulatory reform and social licence, which we see as distinct but obviously closely related issues. We will not succeed in regulatory reform unless we focus on the issue of social licence in parallel.
I will leave it there and turn it back to the chair to open the floor for discussion.
The Chair: Thank you both for enlightening opening presentations. It is amazing how you have synthesized such a massive subject matter.
I cannot resist asking you the following question: The four associations that you represent, at least on the face of it, seem to be the traditional energy sources of oil and gas, et cetera, that we have been dealing with over the years. I did not hear mention of the words "nuclear," "hydro," "solar," "wind" or "alternative energy sources" in your presentations. I may not have been listening carefully enough. From where we sit, if we are to come up with a framework, there seems to be a piece missing. Again, this comment perhaps shows my lack of profound knowledge on the subject. I am interested in your comments on that observation.
Mr. Boag: I will take a stab at it. I will also say that I do not think you heard us talk specifically about oil or gas in this presentation either. We have tried to take an energy-neutral position in terms of looking at this framework. Clearly, it has been the result of work by people who represent the oil and gas sector throughout that oil and gas value chain. However, we did engage those other sectors that you mentioned, and we tried to look at this subject as energy more broadly. We think the initiative has a high degree of relevance, clearly to our own industry segments, but we think equally this framework works for energy more broadly and that it is not focused specifically on the oil and gas sector.
Mr. Cleland: I completely agree with Mr. Boag's point. If you look at our presentation or the paper we will send to you, and take out the word "energy" and put in the word "electricity," you probably will not have to change any other words. I think that test will reinforce Mr. Boag's point.
Beyond that, all of us are finding our industries increasingly engaged in thinking about other parts of this subject. Mr. Boag and I and our associations and industries spend a lot of time thinking about energy efficiency. We have been thinking about energy efficiency in the gas industry for 15 years. We are delivering energy efficiency programs, and we are driving that focus further. We are investing in alternative technologies at the consumer end and high efficiency heat and power systems. Traditional energy industries see the handwriting on the wall. We obviously have our own interests that we will sustain, but we also think that if we have the right kind of energy framework, then we will be able to adapt in that context more readily.
The Chair: I wanted to give you both a chance to make those points. There are policy wonks out there who say, watch out for those guys from big gas and big oil because they have their own agenda. To us, conflict of interest is anathema, and we cannot even accept a glass of water without checking who supplies it. I wanted you to be able to dispel those myths. I believe we are both doing God's work, and we are both looking at the same ultimate goal, which is clean and efficient energy and a revised system of delivery after, as you called it — and I like the way you put it — an unblemished track record of 20 years of failure to deal with the climate change elements. We are looking at that context, too. We do not have time for failure anymore.
I was talking about the expertise of my colleagues. Senator Banks was for many years a dedicated chair of this committee, and he took the members to many sources that they never would have visited, including the Organization of the Petroleum Exporting Countries, OPEC, the International Energy Agency, IEA, and the nuclear people. I think we are all better for it. Senator Banks, you have the floor.
Senator Banks: Good luck at your next meeting.
Gentlemen, it is nice to see you again. Thank you for being here. I will talk about a national energy policy — not the National Energy Policy, which was a terrible mistake, as the courts found and as was harmful to my province, partly taken care of by a restitution of tax refunds. I think you were there at the time, if I remember correctly.
Mr. Cleland: It was a little before my time.
Senator Banks: I apologize. I want to talk about a national energy policy, not with capital letters, but a national energy policy. It probably will need some other name to have a chance of surviving for a minute.
The constitutional situation in this country is unique in the world, in some respects. We are one of the few countries that does not have something that could be defined as a national energy policy, although Canada consumes lots of energy. The reason for that situation is well-known to everyone. It is because of the jurisdictional questions that you raised.
Being realistic, is there a prospect, in your view, of the kind of cooperation, perhaps beginning with a framework, that can ever result in anything that resembles a national energy policy in this country?
Mr. Cleland: I will start by saying, yes and no. I will say yes to the extent that there is a need for Canada, as a national entity, to have a point of view on energy at large that we can project to the wider world and that we can use to communicate to Canadians in terms of where we want to go as a country with respect to energy. It is in the national interest to be more efficient in the way we use energy, and the federal government has levers and ways of working with the provinces to facilitate that energy efficiency. It is in the national interest to ensure that all regions of Canada are able to develop their resource endowments responsibly, for the people in those provinces to be able to enjoy the economic benefits of that development, and for those benefits to flow across the rest of the nation. There are more specific federal interest responsibilities with respect to pipelines, nuclear energy and so on, which clearly engage in precise federal jurisdiction.
Beyond that role and levels of fine detail, no, I do not think so. Those areas are provincial responsibilities. They are closer to the ground. They are closer to what works and what does not. It would be a mistake for the federal government to enter those areas. Frankly, to have a completely agreed upon ten-province, three-territory federal government policy is a waste of time, to be honest. In my view, it would lead to the lowest common denominator. A lot of this initiative is about dialogue and discussion. It is also about the national government having a point of view with respect to its areas of responsibility, which includes our national life more generally.
Senator Banks: You talked about realistic pricing, which I take to mean the internalization of all costs, short-term and long-term, some of which are now simply set aside into what we all pay for everything we consume in energy. I think we all recognize, and maybe even folks are beginning to recognize, that the prices we pay for those things are not realistic, if one were an accountant or compared prices with practically anywhere else in the world. What is the most efficient way to bring about realistic pricing? In other words, I am asking you your opinion. If you were the king and had to choose between cap and trade on the one hand, for example, and a carbon tax on the other, notwithstanding the political difficulty of the latter, would that be the most efficient way to bring about what you are talking about? Despite its political difficulties, do we have to have the political will to fix the problem? Everyone wants it fixed, but everyone also says, as long as it does not cost me anything. Talk about the unrealism of that attitude, and internal pricing and, maybe, carbon tax.
Mr. Cleland: I will preface this answer. As one goes deeper into this subject, one gets closer to the positions and the views of individual associations, so I want to be careful to make it clear that I will speak on behalf of my own association here. I do not think most of my colleagues will find this view to be completely off the wall, but I do not want to characterize it as the position of their associations.
My association takes the view that the most efficient way of reaching realistic carbon pricing is through a carbon tax. We recognize that is not where the conversation stands right now. If there is a need to go down the road of cap and trade, it should be applied broadly across the economy. As I say, every molecule of carbon has the same effect on the environment.
Ideally, we should move to an auction system rather than an allocation system in the first instance. We are reasonably certain, from what we have seen so far, that an allocation system will be highly political. It will be a system of every lobbyist contending with every other lobbyist to try to have an advantage. It is an inefficient way of carbon pricing.
Finally, we have to confront the issue of price eventually. The smartest and most efficient way of going down this road is through the price rather than having the government pick technology winners or having particular programs.
Mr. Boag: I would add again the caution that among the various elements of industry, there is still not a single view in our sector on the merits of either a carbon tax or a cap and trade system. However, I think there is unanimous agreement on the need to somehow put a price on carbon. It needs to be priced in a way that reflects Mr. Cleland's earlier remarks that a molecule of carbon is a molecule of carbon. It needs to be priced on an even, broad basis across the economy, and it needs to be a system that is efficient and simple.
That drives some within our industry to say that the best approach is a carbon tax, notwithstanding the challenges that tax represents politically. Others still believe that there is an opportunity, designed properly, that a cap and trade system can achieve.
One of the thorniest issues in that system is allocation; how do we allocate credits? There is a general view that at some point the most efficient and effective way to allocate credits is through full auctioning. There is not unanimous agreement within the industry about the pace at which we move to that system. Do we move to some earlier system of partial auction, allocations of credits on the basis of some criteria?
That is where the rubber hits the road in terms of the challenges in designing a system that not only works but also does not create some form of unfair, onerous burden and a degree of complexity that, essentially, pulls out the underpinning of effectiveness from the system.
There is still a lot of debate within the industry about how to do it, but there is clearly the general view, as indicated in the paper by the Energy Framework Intitiative, that we need to do it; that is, put that full price on energy, which includes all those external costs — carbon being the most significant one.
Senator Banks: There are already carbon taxes in some parts of Canada and the sky has not fallen.
Am I right in my view that most parts of the system that you are talking about are saying, just tell us what the rules are and we will deal with them? However, until someone tells them what the rules are, there will be slow progress.
Mr. Cleland: As an example, we had our first workshop about three weeks ago with our provincial energy regulators to talk about how we can work together to drive some of the new energy technologies into the system, whether those technologies are district energy systems, combined heat and power, hybrids, new renewables or bio-methane. That is exactly the point: All of us — the regulators, ourselves and the other stakeholders — are stuck.
We are stalled because until we have a price on carbon that we can embed in the regulatory system, there is no way of arriving at prudently incurred costs because no one knows what the costs are. That price becomes the essential first step before the rest of the machinery can start to move this issue forward.
Senator Grant Mitchell (Deputy Chair) in the chair.
The Deputy Chair: You mentioned the provinces that already have a carbon tax. If we think of British Columbia and Quebec, we are talking about a huge portion of the population of Canada that already has accepted it in one way or another. Apparently Saskatchewan Premier Brad Wall was talking about a carbon tax perhaps being a preferred choice because he does not want to send money outside the province, so now we have a third province. Provinces with a carbon tax are starting to add up to a lot of people.
Senator Banks: There are no riots in the streets.
The Deputy Chair: No, interestingly enough.
Senator Neufeld: Senator Banks, there are no riots in the streets but there are elections at times.
Senator Banks: The same thing.
Senator Neufeld: I have experienced that.
Gentlemen, it is good to see you again. We have had dialogues before.
Rather than go into carbon taxes and all those things, I want to talk about my favourite subject, which is part of what we are trying to do here, namely, figure out some way that we can help Fred and Martha understand what energy is, where it comes from, who consumes it and how much. Those are not the only ways, but those are a number of ways.
All the time that I was responsible for energy in British Columbia, I said that governments and industry have done a poor job of letting the public know how much we need these products. If we want to take all the makeup off the shelves, quit using a lot.
People do not understand those kinds of things. We need to get that message out. When we talk about social licence, I think that part is hugely important in making people understand why we need the products that no one wants developed in their backyard.
I have had a lot of experience with that situation where I live, and as minister. People do not like having a drilling rig within 100 metres of their home. It happens where I live, but it does not happen in Victoria, Vancouver or Calgary, the headquarters for the oil and gas industry.
Once you have amalgamated all this information, which I think is super, and I appreciate what you are doing, how do you send the information out to the general public?
The other side is that those that want to see us not use any of these products have a good way of getting their message across. We have experienced this situation in British Columbia in the forest industry. When the environmentalists went to Europe to our markets and showed clear cuts — even though the clear cuts were some of the worst, and some of the things that were done a long time ago that we do not do anymore — the public bought into that message.
Somehow, industry and governments, federal and provincial — must figure out how to get the message across to people that we need these products. That does not mean that we disregard the environment, but some lessons should be learned from some of those experiments in the past.
I am interested in knowing what you plan to do with your information. We are like Fred and Martha. We are becoming educated about a whole bunch of things but we are only a small group. We need to get the message out to the general public.
I have ideas about how to get the message out in schools but those things are in the long term. In the shorter term, we need to get the message out.
To be honest, although I will not blame the industry for this entire problem, the industry has kept its head under the water for a lot of years because it did not want to make any waves. In retrospect, I think that approach was a mistake. Hindsight is 20/20, but I think that approach was a huge mistake because it takes a long time to let people know why they need those transmission lines, pipeline, gas or oil well, wind generation or gas-fired plant close to the city of Toronto where the largest number of people live.
They need generation of electricity and they need to look at their greenhouse gases but, understandably, they do not want these things there: Put it in someone else's backyard, but for God's sake do not put it in mine.
How do you address that problem? I did not see that problem addressed in your presentation and I did not hear you talk about it. I was surprised that you did not speak to the issue.
Mr. Boag: Senator Neufeld, you have hit on a critical part of the work that needs to be done. It is part of the work that the Energy Framework Initiative is currently engaged in. There are low levels of literacy in Canada about energy: how energy underpins virtually everything we do in society and, apart from being great energy producers in Canada, how we are huge energy consumers. That information is generally not available or people, Fred and Martha as we say, simply do not understand. Canadians do not think about what is involved in making a light come on when the switch is turned, what it takes for the furnace to produce heat or what it takes to supply the gas pump when they need to fill up their cars.
We are undertaking to launch a process that will build a snapshot of Canada's current energy situation. We have entitled it, Canada's Energy Circumstances. It is about exposing the facts and will provide a tool to build energy literacy in a way that is accessible to the average Canadian. It will not be full of technical detail and jargon but will be sufficiently comprehensive and robust. How to move that information out to people is a different story. We need to begin with an accurate snapshot that defines in a coherent, comprehensive and accessible way our energy circumstances. It needs to incorporate the demand and energy-use sides as well as Canada's supply circumstances. Following that stage, the next stage is how to utilize that tool to get that message out to Canadians.
Mr. Cleland: I will add to that point, although none of this information answers your question. You are spot on. We need to talk more about this issue and I hope that you will spend time talking about it in this committee.
A couple of specific things will move it in the right direction. One is investing in information. Mr. Boag identified a specific action that we are taking in this regard. A number of us are heavily involved in the Canadian Centre for Energy Information, which is largely industry funded by the upstream oil and gas industry. The centre has gradually attracted provincial and federal government funding. It is also funded by our associations. More could be done through the CCEI as a trusted source, but it is difficult to find the resources because it is not particularly attractive to governments and, therefore, tends to be low on the priority list. At some point, industry will begin to wonder whether this job is theirs to do, although we should support this kind of effort. I agree completely that industry needs to be out there. We are learning those hard lessons but we have a long way to go.
Additionally, we need to engage environmental groups and other related groups that will sit down for discussions of the issues. My association was the driver of something called Quality Urban Energy Systems of Tomorrow, QUEST. This group began after our discussions with Pollution Probe in Toronto and the fact that no one was looking at the possibilities for rethinking the way we deliver and use energy in our communities. Should we work together on this issue? Should we get the message out? We have come as far as working together and engaging various groups, but we are short of getting the message out to consumers. That step is the next one needed.
Senator Neufeld: I am happy with your way of thinking. Governments and industry are great at preparing all the studies and publishing the reports in nice books, but when Fred and Martha want that information, they have to find the books.
We need to make better use of the media, including television, which is expensive, and the Internet. If one does not get a message out quickly in about five seconds and catch the attention of people, they will not remember it. There must be a high profile systematic way to get the message out for longer than one week. This effort will involve industry and governments to show people how we need energy and how we consume energy. I do not like to hear it but we are huge energy consumers. We are also a huge country but that fact is never mentioned along with the fact of being a huge energy consumer. Canada is cold on average, compared to the countries that think we are huge energy consumers. We talked about pricing and what electricity costs in other countries. It is not that those countries figured in the total cost of that generation of electricity. Rather, those prices include taxes to provide services to people. I do not think that is what we want to do.
If the energy price has to increase, then it has to be reflective of what is happening to develop and generate that energy. We need to provide all this information to the public. I am sure you understand that. We need to provide it in a way that does not require reading 18 binders of study results to find out what a petajoule is. We need to simplify the information so we can get their attention and have them understand it.
Senator Seidman: I will tackle the same line of questioning as Senator Neufeld. Our witnesses today have put forward a thought-provoking presentation and stressed the fact that we have to get the principles right. I appreciate that. It is particularly interesting that one of the pillars is an ongoing social licence to build and operate. We have not heard much about the social underpinnings of a sustainable energy system, in particular the human health and safety aspect and assessing costs and benefits. It is clear to me that Canadians will have a large role to play in the success of an energy policy.
My question is on the same subject that we have been discussing. Can you explain in more detail and context the downstream system's consumption, with special reference to your ideas about educating consumers and the role of the federal government in addressing this issue?
Mr. Cleland: There are many layers to this issue that we can peel away. With respect to the downstream side, it begins with understanding what we use energy for, why we use it, and what drives it. Environmental groups have been putting it a certain way for about 30 years, and they have been right: Energy use is about the services we receive, the mobility it provides, heat for our cold winters, the power for the industrial economy, and the power to serve plug load for such things as televisions and other electronics.
We do not buy the energy commodities, although we pay for energy. We buy the services.
If we come at it from that perspective, it opens up a lot of interesting possibilities that allow us to meet those requirements in ways that may be a lot smarter and more efficient, without sacrificing the underlying service, and in ways that may have lower environmental impact because, for example, they put together a mix of external energy from power lines or from gas pipelines with local resources, maybe ground-source energy. A lot of those possibilities are not economic right now, but they could be in the future.
However, the issue is that I want a warm house and I never want to have to think about having a warm house, in that order. The question is whether the energy service delivery industry, which is the organization that Mr. Boag and I represent, and all the others, working with government, can come up with systems that give us that reliability at a lower cost over time, with no less reliability or safety and with lower environmental impact. We think that by looking at the system from the demand end, we can do much that we have not done so far. That initiative is a start. However, there are many layers to that issue.
Senator Lang: Thank you very much, and welcome. I appreciate the succinct presentation and the principles you have outlined. At the start, Senator Banks talked about a national energy policy. I think the word "framework" is probably more appropriate, a national energy framework, because of the differences in our jurisdictions. We have 14 jurisdictions here with constitutional responsibility. That is only a thought.
First, we need to inform the public, as Senator Neufeld and Senator Seidman mentioned. We recently had witnesses here from the World Energy Congress, and its affiliate for Canada. What is your involvement with them?
Mr. Cleland: My association is involved with them. I am an ex officio member of their board. The president of my association has been a member and will be in the future. That is probably true of most of the associations.
Mr. Boag: As an association, we are not directly involved, but our members are.
Senator Lang: The reason I raise this question is because this area is new for all of us here. Each of us brings something to the table from other parts of Canada and with our different backgrounds. In trying to figure out who is doing what, so that we do not reinvent the wheel, it seems to me there must be coordination between an organization such as yours and the World Energy Congress as it relates to Canada — and I believe two other organizations are launching a study similar to ours — so that we can bring this information back to Canadians and so we work in the same direction.
Perhaps you have some comments on that point. When we met with these people yesterday, I asked them why I had never heard of them, yet we are supposed to be working in the same field. How do we relate with each other and try to move in the same direction? Maybe each body takes on that responsibility so that we reach the end result quicker, perhaps something that will work.
Mr. Cleland: I will make a couple of observations, and I am sure Mr. Boag will have observations as well.
That question is about as tough as Senator Neufeld's question in terms of actually doing something. It is like herding cats. I think that when people appear before the committee, they should hear that question and the committee should press for more coordination.
It is easy to say and harder to do. To put it in our own context, as individual associations, we do not have completely convergent interests. Mr. Boag's and my industries have areas where we compete with each other for market share. Our priorities may be different.
There is only so far we can go in terms of these kinds of cooperative arrangements, but I think that you, as a Senate committee, can push people to look for more of those opportunities to push cooperation to a higher level. That is the key. We will always have groups coming in with slightly different views. That is the nature of the world. However, I think we can do better.
Senator Lang: I want to follow up on that line of questioning. You talk about having workshops. The organization that appeared before us yesterday has already completed a number of workshops and has a number of other places to go. Is it appropriate for you to contact them and ask if you can be part of their workshop so that you can bring something to the table? If we bring more people and more money to the table, maybe we will have more exposure. We can work together in those common framework policy areas so that we can come up with something.
Mr. Boag: It is worth exploring. Mr. Cleland has set a good context there in terms of we can only work together where there is clearly an alignment of interest. However, the idea of at least searching to see if there is alignment of interest is absolutely worthwhile to explore.
Mr. Cleland: There is some level of engagement. Recently, I have been providing advice to the people organizing the Ottawa workshop, for example. You do not see it, but there is probably more cooperation and coordination than may appear on the surface.
Senator Lang: Mr. Chair, I want to redirect to a whole different area, the question of price.
On the question of a carbon tax versus cap and trade, I question whether either is necessary. We are looking at $80 a barrel for oil. You made the comment earlier that you think the cost of energy will increase. If that is the case, obviously the consumer will pay more, without adding further taxes. When do we reach the point where a tax is not appropriate because energy is so expensive that we can hardly afford it to start with?
Mr. Cleland: That is a tough question. I will give you two answers. First, an economist's answer will be that we have an unpriced environmental externality in carbon, and until we incorporate that price into the price that consumers face, consumers will not make the efficient choices.
The underlying energy price is another matter. That price goes up and down, but that price does not incorporate the environmental externality. The practical answer is the following: Governments are taking many measures to try to deal with carbon, leaving aside how much sense it makes or what the underlying rationale is, et cetera. Governments are taking a lot of measures that I characterize in many respects as busy work; measures that distort the energy economy, add costs and make the energy system probably less efficient because those measures are, frankly, more attractive, easier and less scary than getting the price out there.
I do not think we are better off as a society, and ultimately I do not think our energy system will be more affordable by taking that approach. I think we are worse off. We pick technology losers as easily as we pick technology winners — in fact, more easily — whereas a price is more likely, in our estimation, to drive efficient outcomes.
That said, there is no question that we rely on affordable energy to power our economy, and we have been successful as a nation having taking that approach. There is no question that some part of Canadian society, the lowest income part, will suffer in the face of higher energy prices, and we have to take that fact into account.
Senator Brown: A couple of words bother me. We talk about sustainable energy. It seems like we have been supplying sustainable energy for a long time in the world. It seems like every year we have another big find, like shale gas in Texas replacing what used to be the Gulf Coast gas in the Mexican Gulf Coast. We have methane gas production in a number of provinces. Shale gas was discovered in Saskatchewan.
It seems like the driver for sustainable energy is energy consumption, because when the price goes up, producers go after more of it. In the oil sands in Alberta, the Organization of the Petroleum Exporting Countries, OPEC, drove the price all the way to $140 a barrel, which caused economies to collapse literally. I remember before OPEC was formed and they were pumping oil out of the ground in Saudi Arabia — rather, they were not pumping it at all, they were taking it because of the price and pressure of the gas. They were producing oil in Saudi Arabia for something like 50 cents a barrel.
I cannot get my mind around the words, sustainable energy, because I think we will move into more nuclear plants or whatever it takes, to make it happen. Ontario tried a big project, and only last week they said they could not produce the amount of wind energy they were trying to produce or wanted to produce. The project was supposed to produce 1,100 megawatts, and it turned out to produce 150 because the wind is not dependable. The claim was that they can build five nuclear plants for the cost of the wind power. I think sustainability is something that depends on how far we let the price go.
The other concept that bothers me is the idea of "transparent" pricing. I cannot understand exactly how we accomplish that pricing, because Hoover Dam, for instance, has paid for itself about four and a half or five times. I am sure hydroelectricity in Quebec has long since paid for the James Bay project. Other than continuing the operation of the hydropower itself and the electrical lines, it is cheap. On the other hand, for something like the oil sands, last time I heard, their pricing was around $40 a barrel before they could make a profit of any kind. At $80 a barrel, the price looks good for them. The oil sands are continuing to develop new technologies. Only a few weeks ago, I received a pamphlet from them showing testing they are conducting with a solvent of some kind that can be pumped into the oil sands and, in situ, it can bring the oil out of the sand.
This brings me to the conclusion, and I know it is a tough one. You have already mentioned it. When we have so many different areas and so many different places in the world where energy costs a different amount, why are we not willing to swallow the pill of having a consumption cost? Everyone who drives a vehicle uses more fuel. I live in rural Alberta and I have a four-wheel drive vehicle. I am as guilty as anyone else that has one of these vehicles.
Senator W. David Angus (Chair) in the chair.
The Chair: Have you arrived at your question yet, senator?
Senator Brown: The question is, why do we not have the courage to go after a consumption cost, period, no matter if the energy is from Quebec, Alberta or Manitoba, which has a lot of hydro? When do we swallow that pill and say, this is what energy costs in this area, and this is what we have to price it at, and blame it all on consumption?
Mr. Boag: It is a carbon tax.
Senator Brown: Yes, a carbon tax, if you want.
Mr. Cleland: A quick answer to that question is, leaving carbon aside, most of the energy we consume in this country reflects the costs. It is priced in open markets. The costs include a lot of environmental regulation and the costs of that environmental regulation, to make sure that the energy is priced in ways that are environmentally acceptable. Costs also include the underlying social costs, for example, for landowners to transport the energy requirements across their land. Most of those costs are, in fact, embedded in the prices that consumers see, and those prices tend to produce the right kind of consumer response.
The exception is carbon, and the other exception is electricity, for many historical reasons. It is easy to cast aspersions on electricity, and I want to be careful, but right now, consumers in many Canadian provinces see a historic cost of electricity as opposed to the cost of future electricity options, and moving it in that direction is something we need to think about. Those two are the real exceptions to what otherwise is a pretty good system.
Senator Brown: I understand what you are saying about carbon. In the United States, all the electricity could be coal-fired except for the fact that they are having a lot of problems with the environment and they are worried about the carbon emissions coming out of coal-fired plants. Coal happens to be the largest source of energy in all of North America, but they are using very little of it compared to what they could use. If they raised the price of that energy to cover the cost of building scrubbers, and they have the technology already, is that the fairest way for the people in that area that are strictly on coal to pay for the energy? I do not see how we can have one price across North America for energy.
Mr. Cleland: You are probably right, and in effect, I think we agree. In that case, if they want to determine that environmental cost, they lay on an estimate of what that cost is through some appropriate mechanism, and that will drive certain kinds of behaviour. From the perspective of my industry, a lot of the behaviour it will drive is to move people into gas-fired generation. From where we sit, that situation looks good. That is the sort of thing we have to address, but I think we have to be careful that we understand the fundamental circumstances of where we are and are not seeing those real costs. I, for one, do not want to encourage government to become carried away adding in all sorts of charges, taxes or new features. We do not need them. If the market is working well, it will get most of what it is we want.
Senator Brown: If organizations like your own, the Canadian Energy Pipeline Association and all those organizations, and the gas-fired people and their organizations start to talk about the fact that we need the people who consume more energy in any one area to pay more, that discussion will allow governments to have the courage to put the issue out there, knowing that it affects votes.
Mr. Cleland: Mr. Chair, I want to make a plea: When you hear from environmental groups, I hope you will say the same thing. Many of them tend to keep their heads down on this issue. They need to be out there with that message, and we will stand up with them, but it is hard for us to do it on our own.
The Chair: Thank you. That is a good point.
Senator McCoy: Thank you, and welcome back. You have a smile on your face.
The Chair: Thank you. I have a smile on my face. I always do.
Senator McCoy: It is not an indicator then. I am delighted to have you gentlemen with us, and your colleagues, in spirit.
There is a lot to talk about these issues, and one of the difficulties, of course, is getting the landscape right so we can begin to frame the right questions. First, I want to ask if you would describe what you are doing in terms of getting the fundamentals right. I do not think we in this committee have gotten the fundamentals right yet. We are only beginning to explore the subject, in truth, but we have not mastered the fact yet. Is that what you referred to when you said you are establishing a baseline understanding of Canada's energy circumstances?
Mr. Boag: Yes; I was referring to creating a factual snapshot through the demand and use of energy services through to the supply end of Canada's energy system on a national and some element of a regional basis — issues in terms of the jurisdictional environments that we live in — and, perhaps, identify underlying trends that will need to be taken into account. It is to say, here are the facts. These are the circumstances with respect to energy in which Canada finds itself in 2010.
Senator McCoy: Have you commissioned this work?
Mr. Boag: We are in the process of completing that work now. We have not completely finalized it yet but expect to do so within the next week.
Senator McCoy: That work will be a valuable resource.
Mr. Boag: Mr. Cleland will correct me if I am wrong, but our timetable to complete it is the end of May, is it not?
Mr. Cleland: Yes, or thereabouts. At some point, we will be delighted to make it available to you.
Senator McCoy: Thank you. I was hoping you would make that offer. I appreciate it.
I think the elephant in the room is not so much climate change as our inability to talk about the consumption end of the equation. It is almost a barbell here. We are so used to talking about the supply end and even the delivery end, but we are not used to talking about the consumption end — although so many of the senators are reaching for that end, as you can hear, and rightly so. I still do not think we have learned to talk about it except in self-flagellating ways; talking about sacrifice and so on. It is no wonder that no one wants to go there until forced to do so.
In your slides, your first pillar is sustainable end use. However, when you talk about specific policy work — pillar 1 — you talk about sustainable delivery of energy services. I think that difference is a subtle shift, or it seemed to me to be one.
Mr. Boag: I will refer to Mr. Cleland's earlier response that we need to look at the end use of energy from the perspective that we are not using energy for the sake of using energy. We are using energy because we want certain services delivered — whether those services are mobility, light, heat or industrial activities —the plug load Mr. Cleland talked about. That is what we mean by the delivery of services. Ultimately, the delivery of those services consumes energy. We are trying to look at that issue.
We expect, as Canadians, certain services from energy, whether it is to turn on the light or the burner tip for the furnace. I think we are talking about that issue; the language may not be as clear as we need it to be.
Senator McCoy: Especially in the energy industry, when you say "delivery," I immediately think of pipelines and so on.
Mr. Cleland: Yes; I think you may have caught us in an editing failure.
Senator McCoy: No, I think it is part of the emerging philosophy.
Mr. Cleland: There was a certain deliberate meaning and let me try to get at it. "End use" implies the end-use energy efficiency — for example, changing light bulbs. Delivery and end use reaches out to the immediate system that brings the energy to you. It is the immediate distribution system of wires and pipes. It also opens up the local energy sources, whether it is solar, geothermal or use of waste, which is a potentially huge part of the story.
If you look at the standard diagram for primary energy into the economy and end use energy at the other end, of the primary energy that comes in, leaving aside exports and imports, half goes out as waste because the system has all sorts of inherent inefficiencies. We cannot eliminate all those inefficiencies, but we probably can eliminate a lot of them. There are also things like other sources of waste.
The point is that, within the urban or community boundary, there is a system of use and delivery that is all bound up with itself. That is where we are going with that item.
Senator McCoy: That is Peter Tertzakian's point, essentially.
Mr. Boag: That is right. The most illustrative example is electricity and a light bulb, where the numbers are 100 to 2. The primary energy input is 100 units. What ultimately is consumed or produced as light at the end of that input are two units.
Mr. Cleland: You have put your finger on another fundamental issue. A member of Parliament once told me: "We will not point fingers at consumers." To that comment, I say of course not; you would be crazy politically to do that. If this issue comes to pointing fingers at consumers, if it comes to saying, we are energy hogs, or wasteful and immoral as a people for the use of energy, the conversation is over.
If it comes to saying, there are better ways that we, using our brains, can organize this use to be smarter, cleaner and more efficient, that gives people ultimately the same level of energy service — they can drive the kids to hockey, they do not have to think about whether the house is warm and the lights go on reliably — that is a different conversation. In terms of how you engage people, that is more complicated, but it is also a positive conversation, as opposed to saying you are bad people because you are using energy.
Senator McCoy: Perhaps that is what we need to reach for, namely, a way to frame the energy story and dialogue; not so much as policy, a framework or even a strategy, but as a way to frame it that includes, perhaps, some of our leaders.
Another thing that strikes me is the blaming language that occurs across our country at the moment, notwithstanding that we have a diversity of circumstances, region to region, that are fundamentally driven by geography. That is where the resources have driven the choices. There are policy experiments, yet people tend to fall into the hectoring mode rather than the collaborative mode and the positive dialogue that I think Canada needs.
That is my statement of observation. I wonder if that is a part of the Energy Framework Initiative. It is something that the Senate committee can contribute. If you think that is true, how might you suggest that we bring people together and help them find that positive way to frame the discussion?
You may not want to answer immediately. I think you might consider it over time as well.
Mr. Cleland: It is probably not so much wanting to answer, it is not being sure that we have an answer. The question is big and complex. Perhaps it is a question that you can answer as easily as we can. That should be the fundamental objective.
Earlier in the conversation when we talked about social license, I made the point that the short form that people use is NIMBY. I have never been to an energy conference and someone has not got up and said that. Everyone laughs, but it is not that funny. It is about blaming those other guys because they will not let us build our projects.
Maybe they have reasons for it. Maybe they are being unreasonable. Unless you start the conversation with something that opens up possibilities, you will close them down fast. We have to move away from this blaming language, as well as blaming mindsets behind it.
Senator McCoy: Part of the magic may be formulating the questions because that can direct the way we talk about it.
Senator Mitchell: As I listen to this conversation, it dawns on me that as much as we might need new technologies to deal with energy issues generally and climate change issues specifically, we need a new technology that will help us communicate more effectively with the public. We have to develop that.
You talked about credit allocations and markets. You made the point that auctioning would be superior to allocating. What is your sense of the scope that should be developed or established for those markets? There is great debate about not sending money out of our province. Is the scope Canada or North America? Generally, the broader it is, the more effectively it will work, but there are political constraints.
Mr. Cleland: That assumes a cap and trade system in a carbon market.
Senator Mitchell: Yes, in that context.
Mr. Cleland: I confess a great deal of skepticism that we will see a North American, far less a world, carbon market in my lifetime. I think it will prove to be very complicated. I may be completely wrong, though. I go back to when I first starting working on this issue in the immediate aftermath of Kyoto in early 1998, 12 years ago. I started to think about a Canadian cap and trade system to respond to what we had done the previous fall. Colleagues said to me, "This is not rocket science." My observation today is that it took eight years to get someone to the moon. It has taken 12 years and we are no further ahead in developing a system in Canada. It is proving to be extremely complicated.
Senator Mitchell: The "why" of your belief that we will not get this kind of market in a long time is because it is politically complicated.
Mr. Cleland: I will make this as a personal observation, but not inconsistent with my association's position. That is why I tend in my own mind to come back to "tax" as far and away the simplest way to deliver effectively the same thing.
Senator Mitchell: This next question may be redundant given what you just said, but assuming that we did get one and you were designing it, would you include offsets?
Mr. Cleland: Again, you would definitely want to do that to the extent that there are things outside the system. However, if the system extends to the whole energy economy, there are relatively few offsets left. To the extent that there are, yes, you would want to do so.
Mr. Boag: I would say the same, but whatever the system, the goal is to make it as broad as possible, which would limit the ability to have offsets.
Senator Mitchell: You would squeeze them out?
Mr. Boag: Yes.
Senator Mitchell: Shale gas has been touched upon. We hear many reports that it is huge. What will it do to energy markets generally? What will it do to Canadian energy products being exported to the U.S.?
Mr. Cleland: By all accounts and from everything that we can see today, shale really has changed the nature of the gas business in North America. It would be hard at this point to view it any other way. The resources available, their scale, their location and the cost of production have all fundamentally changed from what we saw three years ago.
There are many things that you can do with natural gas — and I want to be careful not to get into advocacy on my own association — that are good ideas, environmentally smart and good for consumers. That is easier today than it was in a world of $10 or $12 prices.
At the other end of the system, though, there will be a challenge for Canadian producers to be competitive. The jurisdictions in Canada that are producers of natural gas — and going into the future, the biggest is British Columbia, with its shale resources — are obviously having to scratch their heads hard to think about what they will do to ensure that Canadian production is competitive, because it is not what it was a few years ago, given the other supply options.
Senator Mitchell: Could you give us your assessment of carbon capture storage, the development of that technology and what role it is potentially able to play?
Mr. Boag: I am not an expert on carbon capture and storage. That said, it is a technology that is still in its early days, but I think it is a technology that offers significant potential. We will see where it goes. Certainly, many technical issues still need to be resolved, but there is a potential for Canada to become a leader in that technology. It warrants continued support and exploration.
Senator Mitchell: Finally, I am quite interested in your point about not having governments pick technological winners and losers. That directly addresses the issue of these funds that are set up at $15 a tonne, or whatever, as a fail-safe to a market mechanism. I am not being critical of Alberta, where they actually have some kind of system; good for them. Are you referring to that particular kind of initiative as well? You then have a group of people trying to decide how to spend this money. Why not let companies make the decision in the open market?
Mr. Cleland: There are several things there. I will distinguish between spending on technology development and what I would call market deployment.
In the case of technology development, there is definitely a case for an aggregation of the funds because there is, in economist terms, a positive externality. The benefits flowing from that will accrue to many people, apart from the person investing in it. There is a case for some government funding and private sector funding to come together collectively in terms of technology development. What Alberta is doing in that regard, from what I know, makes a lot of sense.
In terms of deployment — that is, actually driving these things into the marketplace — our argument is simply that if government feels that it needs to design incentive programs to do this kind of thing, design them so that they are performance-based as opposed to technology-based. In other words, if they can achieve cost-effective energy improvement, greenhouse gas reduction or other environmental benefits such as a reduction in air contaminants, then they should be considered irrespective of the technology as opposed to a list where some are approved and everyone else is out.
Mr. Boag: I will add that subsidizing, in the energy field, one fuel over another on the basis of picking one technology over another, as opposed to a more performance-based approach, is not something we support.
Senator Lang: My question is about the regulatory systems. There are 14 of them in the country, and they all vary in different ways. It goes back to the comment about "not in my backyard." The advocates of the "no" side win the day in most cases, in part because the system we have set up allows that to happen.
Is your organization looking at the general concept of the regulatory systems and whether it can come forward with recommendations regarding positive changes that can be made to the systems so that we get into a dialogue about the merits of a project versus this black-and-white situation where you are either for it or against it?
Mr. Cleland: I have a couple of observations. Our colleagues from CAPP and CEPA, as mentioned in our presentation, are doing some work on that. We are collaborating with them, but it is their lead. They would be able to provide you with much more on that than we can.
There are things to be done. We will not make many great leaps easily because there has been a long buildup regarding these different systems and you do not fix things quickly. I commend the government for its small step of giving the National Energy Board authority to conduct environmental assessments for projects under its purview. It is one of those small things that moves you in the right direction. There are many other small things that can move you in the right direction, such as shifting toward one review so that the federal government does not duplicate what the provinces do. Again, our colleagues are much more expert in this than we are.
I offer a piece of advice, for what it is worth. As a committee, you might want to invite to the table a panel representing a number of different perspectives. Keep the focus on this specific issue because it is undoubtedly one of the biggest priorities facing Canada in terms of its energy system over the next decade or so.
Senator Banks: It is easier to calculate the cost of doing something than it is to calculate the cost of not doing something because there are specifics in the first case and speculation in the second.
I would like your blue sky thoughts about the cost of omission in two areas. First, are we paying more or will we end up paying more in this country because of the jurisdictional fractionalization than we would otherwise? That is a theoretical thing, I guess. Second, how much thought should we give and how much thought can we give to the cost of continuing the failure that you have talked about? I am referring to continuing to fail to bite the bullet. It is easy to say, "This is how much it will cost if we quantity carbon or just put a consumption cost on it." Is there a way to find out the costs or at least to identify the costs of failing to do that?
Mr. Boag: You have hit right on it. It is very difficult to quantity the cost of not doing something because you are talking about amorphous, nebulous assumptions.
I will turn around and talk about one specific example of where I think we have a cost. It relates to your question, senator, concerning the jurisdictional issue, about not doing something to achieve better coordination between jurisdictions. It is not necessarily a dollar cost. This example is clearly unique to our sector, and that is the move of various jurisdictions across the country to implement different fuel standards, including renewable fuel standards. We have, province by province, in every case, subtle differences to a renewable fuel standard. The federal government has been attempting to bring in a renewable standard on a federal basis, and that is still not in place. The cost there is cost to resiliency in the system. Given the unique differences and nuances from province to province, we have essentially created individual markets in those provinces, whether it is for gasoline or for diesel fuel.
Senator Banks: Is that not inefficient by definition?
Mr. Boag: It is inefficient by definition.
I want to come back to your cost issue and my view of the cost in terms of the resiliency of the system to respond to external shocks and challenges to all supply. Artificial barriers do not allow, on a fast, quick turnaround basis, to transfer fuel from one jurisdiction and ship it into another.
That is an example of how the jurisdictional issues create costs, whether it is a weather issue or an issue around a refinery operation. If a refinery goes down, one that is a major source of supply within one jurisdiction and produces a product made distinctly for that jurisdiction to a certain standard, whether a renewable fuel standard or a fuel quality standard with respect to certain constituents of the fuel, the resiliency of the system is affected by preventing it from responding to a shortage in one jurisdiction by being able to ship supply from another jurisdiction. The product no longer becomes fungible across borders.
To return to your question concerning challenges, that is an example of jurisdictional differences not necessarily creating a dollar cost but certainly a cost to the resilience of the system to ultimately meet the energy services that are demanded by consumers.
Senator Banks: If that resiliency cost exists, will it translate into a dollar cost?
Mr. Boag: Potentially. I am not in a position to be able to forecast that. However, it is an example of how intentional regulatory mechanisms fragment markets and create challenges within the system that ultimately are costly, whether in terms of a cost in dollars or a cost with respect to the ability to respond to the services that customers want.
A good example of that — and this is not a Canadian example, but it highlights the folly of the situation — was in the United States in the wake of Hurricane Katrina. Much of the U.S. and North American refinery capacity is on the Gulf Coast. That was down for a considerable period of time. Fuel was just not available in states like Louisiana. One of our members, who also operates a refinery in Colorado, was prepared to ship fuel free to Louisiana in order to meet some of the demands that Louisiana was unable to satisfy. As a result of state differences in fuel quality regulations, they were unable to do that. This was an emergency situation. The system was showing its resiliency in this case with a donation of significant quantities of fuel to meet a requirement. However, a regulatory barrier in the form of relatively minute differences in fuel quality standards prevented that from happening.
The Chair: It is like the cars from Quebec in the future.
Are there any further questions?
Senator Brown: I have to applaud your comment that you do not think Canada will have a trading system in your lifetime. An individual from the Alberta government once said about trading, "If I need to lose 20 pounds of weight and I hire someone else to lose the 20 pounds, is there still that much fat left around?"
The Chair: Is this an observation, senator?
Senator Brown: Yes.
The Chair: That is an interesting one.
I wish to conclude by thanking you gentlemen and your associations. I think you are on a useful and, hopefully, productive tract. Senator McCoy elicited your kind willingness to provide us with that paper and other data that you are gathering so that we do not do a lot of work that has already been done efficiently by you folks.
By the same token, we are putting up a dedicated website concerning this particular study. Our transcripts are available and we are open to any other suggestions you might have as to paths we might go down to cover ground that would be mutually beneficial. I am sure you will keep that in mind.
(The committee continued in camera.)